Moody’s Downgrading the U.S. Credit Rating

     

Moody’s has followed in the footsteps of credit rating agencies S&P Global and Fitch Ratings, downgrading the United States from their highest triple A rating.

The move comes amid ongoing challenges associated with mounting U.S. debt and little sign of significant debt reduction in Congress, despite recent actions from the Department of Government Efficiency, or DOGE.

Moody’s decision to lower the U.S. credit rating to Aa1 from Aaa follows similar decisions by Fitch Ratings in 2023 and S&P Global in 2011. It also adjusted its outlook to stable from negative to reflect the downgrade.

“While we recognize the US’s significant economic and financial strengths, we believe these no longer fully counterbalance the decline in fiscal metrics,” said Moody’s statement.

The federal budget deficit totals nearly $2 trillion annually, accounting for roughly 6.4% of gross domestic product (GDP).

The move isn’t likely to have a big impact on debt markets, given Fitch and S&P Global’s downgrades did little to slow down demand for Treasuries. The 10-Year Treasury Note currently yields 4.44%, up from 3.62% last September. That's about where it was in the mid-2000s.

Nevertheless, the downgrade reflects growing concern that sky-high deficits and government spending will put upward pressure on Treasury yields, forcing rates on everything from credit cards to mortgages higher over time.

Moody’s decision coincides with President Trump’s cornerstone tax and spending bill, which is currently under consideration by the House of Representatives.

The bill extends President Trump’s 2017 tax changes, while also including new provisions, such as increasing the Social Security income tax deduction and eliminating taxes on overtime and tips.

While the bill is popular among many eager for additional tax relief, some GOP members have blocked the bill, hoping for steeper cost cuts to offset the tax breaks. In the crosshairs is Medicaid, which is already the subject of cost-cutting in the bill.

The tax proposals could boost long-run GDP by 0.6% but reduce federal tax revenue by $4.1 trillion from 2025 through 2034, according to the non-partisan Tax Foundation.

The proposed tax cuts boost deficits by $3.8 trillion over the same period, or by 1.1% of GDP.

Five republicans voted against advancing the bill out of the Budget Committee and to the House floor for a vote.

“Republicans MUST UNITE behind, ‘THE ONE, BIG BEAUTIFUL BILL!’,” wrote Trump in a post on Truth Social. "We don't need 'GRANDSTANDERS' in the Republican Party. STOP TALKING, AND GET IT DONE!"

Source: Todd Campbell